By Jameel Ahmad, Global Head of Currency Strategy and Market Research at FXTM
From its humble beginning as a bookseller to the renowned international technology giant that it is today, Amazon has weathered a global financial crisis and managed to briefly become only the second company to pass a market cap of $1 trillion, in 2018.
There are, however, some near-term concerns suggesting that operating income might have peaked for now, highlighted by its announcement earlier in 2019 that it was ceasing its business in China where local competitors such as Alibaba and JD.com dominate.
Bullish analysts hope for more gains
Still, many remain optimistic on the stock including 45 analysts who have set a median target of $2180, with a high estimate of $2573 and a low estimate of $1850 over the next 12 months, as reported by CNN Business. Looking at the median estimate alone, this suggests that the stock price could potentially climb about 18% next year. Amazon traded between $1705 and $1901 from August to December, after breaching the psychologically-important $2000 level in July. Amazon’s stock closed out the year at $1847.84, which represented an annual advance of 23%.
Investors are clearly still impressed by Amazon and the consensus above suggests its valuation will continue to grow. The share price has already climbed by over nearly 500% over the past five years, making the advances in both Apple (166%) and Facebook (163%) appear insignificant over the same period. In 2010, the share price of Amazon was around $180 and this figure climbed as high as $2050 in September 2018.
Product diversification helping growth
Amazon’s ecosystem of different products on offer is seen as helping the firm manage the risks from slowing global growth. One of its venture successes, Amazon Web Services has become a dominant player in the growing cloud computing sector but currently only contributes 13% of its revenue. Amazon is already a household name for shopping and fast deliveries, while its streaming service Amazon Prime looks set to get ahead of the curve against growing competition in the streaming space with further broadcasting of live sporting events, including the football English Premier League that carries with it a worldwide following.
Investors await earnings update
The technical outlook shows that Amazon’s share price has found fresh legs. Its 50-day moving average crossed above its 100-day moving average recently, after the stock broke past the upper limit of its sideways trend since August 2019. Amazon could claim more of its upside if the upcoming earnings deliver stellar results from the year-end shopping season, which the company has already identified as “record breaking”.
Should Amazon break past $1960, the path back above $2000 could tempt investors to revisit 2019’s highest closing price of $2020.99. A close above $2039.51 would be a new record high.
To the downside, the $1820 level is seen as the immediate support level, with stronger support set to arrive at the mid-$1700s.
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